Elsewhere: Hotels for Luxury Consumers

Just like in Moscow, the development of inexpensive hotels in Dubai has not yet begun. But then, there is no need for that. The region continues to account for only 4% of the total number of tourist arrivals worldwide, which indicates strong potential for future growth in terms of arrivals and further hotel demand. On the whole, the Middle East hospitality industry may be described as growing rapidly.

The strong trading performance of hotel markets in the Middle East in 2004 was followed in 2005 by skyrocketing double-digit growth. This was driven predominantly by growth in average room rate, HVS said in its annual Middle East Hotel Markets report. According to HVS’ estimates, in 2005 occupancy declined slightly on 2004, from 72% to approximately 71%. The average room rate grew by approximately 17-20%.

The hotel markets in the region have historically been underpriced in comparison to other international markets (mainly those in the West). However, such a situation is coming to an end. A rigid pricing strategy was implemented simultaneously across the region in 2005, a move triggered by increased liquidity in the region and sustainable levels of demand. The strong purchasing power of the GCC consumers (driven by staggering economic growth and liquidity), together with the sustained levels of corporate and leisure demand in the region, successfully absorbed the rise in room rate. The price elasticity of the hotel markets was further facilitated by the steady appreciation of the euro against the US dollar (Europe is the main non-Arab source market for the region). Hotel gross operating profit (GOP) grew on average by 24% in 2005. Regional GOPPAR (GOP per available room) improved from US$62 in 2004 to US$76 in 2005.

Given the emerging nature of the hotel markets in the region, the investment arena continues to be geared towards new development rather than acquisition. Analysts expect the current volume of investment in proposed hotel assets to be approximately US$15 billion. Preliminary reports show that the region’s four-star and five-star hotels now provide more 60,000 hotel rooms.

According to the EIU, real GDP growth in the UAE is forecast to be around 6% over the next two years. The booming economy is driving higher inflation (projected to be approximately 5% in 2005). The government is pressing ahead with its reform programs, and multibillion-dollar infrastructure, real estate and tourism projects are taking place in the country with Dubai and, now, Abu Dhabi being at the forefront. The number of visitor arrivals in the UAE increased by approximately 8% in 2005, with Dubai and Abu Dhabi absorbing most of the growth (in actual terms). Dubai is now one of the leading destinations worldwide in terms of transient leisure and business demand, and it appears that Abu Dhabi is being carried along by this momentum.

Quality hotels in Dubai achieved staggering RevPAR growth of almost 40% in 2005: RevPAR climbed from US$124 in 2004 to US$171 in 2005. In spite of the aggressive pricing attitude of the hotels and the new supply that became fully operational during the year (Park Hyatt, Le Meridien Grosvenor House, Radisson SAS, Villa Rotana Suites, Al Mourooj Rotana) occupancy was 85%, compared to 86% in 2004 (higher than in New York and Singapore where occupancy stood at 83 and 80% respectively). Moreover, average room rate grew by approximately 40% on 2004, to US$202. GOPPAR was estimated to be US$180, an improvement on 2004 of a phenomenal 60%. 17,000 rooms are likely to enter the market in Dubai over the next four years, and this will undoubtedly have an impact on the trading performance of the market, resulting in a likely correction (return to ‘normality’) between 2008 and 2009. HVS expects 8.1 million tourists to visit Dubai this year. By 2010 that figure will reach 15 million.

Operators planning to enter the hospitality market in Dubai seek to do that as early as possible, while those who have already secured a foothold there, are set to expand their presence. Recently, Thailand-based Minor International hotel chain has unveiled its plans to launch two hotels in Dubai. The chain will run Anantara Resort Palm Jumeirah (to be finalized in 2007) and Anantara Jumeirah Lake Dubai (2008).

Anantara Resort Palm Jumeirah will comprise 243 hotel rooms complemented by 132 fully furnished and serviced apartments, all within a single 15-storey building. The second property in Dubai will be the Anantara Jumeirah Lake Dubai. Due to open in the first quarter of 2008, this property will be located within the distinctive Jumeriah Lakes development project comprising of offices and residential facilities. The 45-storey hotel is situated behind Dubai Marina and just minutes away from the world-famous Emirates Golf Course.Anantara Jumeirah Lake Dubai will feature 473 rooms, suites and service apartments ranging from 42 sq metres to 115 sq metres in size. Hotel facilities will include four restaurants, three refreshment lounges, extensive meeting facilities and the world-class Anantara Spa, in addition to other recreational facilities.

Diversity of Projects

In addition to hotel operators, prominent billionaires, too, take interest in Dubai’s booming hotel market. For example, Donald Trump and Nakheel, the UAE’s premier property developer, have unveiled plans to develop Trump International Hotel & Tower, mixed-use complex that is to become the centerpiece of The Palm Jumeirah. The 48-storied facility will provide 300 condo hotel apartments, and 360 apartments of 2 to 4 bedrooms, for sale. Residents and guests will be offered recreation zones, private beaches and a yacht club. The complex will also feature boutiques, bars and restaurants, sports and health facilities.

One of the new joint ventures formed recently by Guidance Financial Group and Kempinsky Group is Shaza Hotels. The Middle East and North Africa will see the birth of more than twenty, high-end lifestyle hotels over the next few years, said senior executives with the newly launched hotel brand, Shaza Hotels. The product of a partnership between international financial firm, Guidance Financial Group, and Kempinski, the world's oldest luxury hotel brand, the group will construct hotels in gateway cities around the region such as Dubai, Cairo or Beirut.

'Shaza Hotels is a concept which is already receiving much interest from the region's financial and investor community,' said Dr. Mohamad Hammour, chairman of Guidance Financial Group. 'Our novel brand concept has already attracted tremendous interest among developers who have expressed a desire to have their hotel projects managed by Shaza Hotels,' added Hammour.

Earlier Guidance Financial Group executives announced the launch of an investment vehicle that will back the 500 million dollar development of the Shaza venture and has already received pledges covering the majority of the fund.

'We are both proud and excited to be sharing with trade visitors to ATM the fruits of all our hard work. Shaza Hotels is a brand whose concept, timing and positioning are ideally suited to the emerging travel patterns we are witnessing in the Middle East and North Africa,' said Christopher Hartley, chief executive officer of Shaza Hotels. 'This region requires five-star hospitality that is authentic; a hotel experience that is genuine to aspirations of this market, but which does not compromise on quality and service levels,' Hartley added.

Shaza Hotels will be positioned as a new brand that expresses, in a contemporary, design-led environment, the aesthetic, art of living and values of the Middle East and North Africa region. The brand will be expressed through a unique collection of differentiated experiences from guest rooms and public areas to dining and spa facilities.

The brand will capitalize on the continued growth of intra-regional travel, particularly family groups and business travellers, who will appreciate the prime, city-centre locations with an urban-resort feel. Each property will contain unique concepts, such as hammam-influenced spas and bathrooms and restaurants inspired by an array of regional cuisines.

The Swiss chain Moevenpick Hotels & Resorts (MHR) announced plans to launch four new hotel in Dubai. By 2008, MHR will run nine hotels in the UEA. Moevenpick Hotel Deira is scheduled to open in March 2007 and the M?venpick Resort Oceana Palm Jumeirah is scheduled for April 2007. The Moevenpick Resort & Spa Palm Jumeirah located on the outer crescent of Palm Island will open in May 2007 and Ibn Battuta Hotel Dubai operated by MH&R at the Ibn Battuta Mall will welcome its first guests in September 2007.

Four Seasons Hotels & Resorts, the chain that runs seven hotels across the Middle East, has properties in Dubai, too. The chain is set to expand its presence in Dubai over the next years, says Shaker Akbar, Regional Director of Sales - Middle East. In 2006 the chain took over the operation of Al Badia Golf Course, that is to be renamed Four Seasons Dubai Golf Club. In 2008, Four Seasons Hotels & Resorts will take up management of a new development that will feature Four Seasons Hotel Dubai Festival City (373 rooms, 80 apartments).

Hilton International, too, is set to develop new properties in the Middle East, which accounts for 10 percent of the company’s earnings, Guy Epsom, Regional Director of Sales and Marketing at Hilton International Arabian Peninsula told the ATM forum. In the near future the chain is to open Hilton Jumeirah Beach Club (late 2007), to be followed by the first Conrad in the Gulf in Dubai, in 2008.

IFA Hotels & Resorts (IFA HR) has announced the appointment of luxury hotel operator Fairmont Hotels & Resorts (Fairmont) to manage The Palm Golden Mile and their two shoreline buildings, Al Nabat and Al Haseer, IFA HR's residential projects, located on the trunk of The Palm, Jumeirah.

The appointment reinforces Fairmont as one of the leading luxury operators within the region and further strengthens the relationship between the two companies. Inventory under the management of Fairmont will now range from traditional hotel keys within the Fairmont Palm Hotel & Resort, through to luxury apartments and penthouses managed under a tailored rental administration programme.

The Palm Golden Mile is a Joint Venture between IFA HR and Istithmar and will feature ten waterfront buildings, featuring everything from one bedroom apartments to grand penthouses and townhouses. The luxurious 860 units have been designed with waterside views, spacious private patios, iconic architecture, elegant interior design and membership access health clubs and beach clubs on The Palm, Jumeirah.

Al Nabat and Al Haseer are two shoreline residential developments of 246 apartments built in an eclectic Arabic style on the trunk of The Palm, Jumeirah. The development also offers an array of facilities including a members-only health club, gymnasium, swimming pools and other facilities associated with a 5 star operation including valet and concierge services.

Owners of both developments will benefit from a Rental Administration Programme, managed by Fairmont that allows the investor to purchase a fully furnished interior design package, which Fairmont then administers and lets out on their behalf, alternatively Fairmont can handle the normal long term rental contracts to cater for the needs of the short and long term tenant.

Mr. Patrick Smith, Vice President Asset Management, IFA HR said, 'The facilities available at The Palm Golden Mile and Al Nabat & Al Haseer will be unsurpassed, giving residents an opportunity to enjoy a waterfront lifestyle. With the management of these residences entrusted to Fairmont Hotels & Resorts, we have delivered on our promise to clients, to have the highest level of service available to our residents.'

The Palm Golden Mile will encompass some of the Palm Jumeirah's premiere retail shops, offices and residences. Construction of this premiere mixed use resort is now well under way and completion is expected in first quarter of 2008. The Al Nabat & Al Haseer buildings form part of Nakheel's Shoreline apartments and are scheduled for completion in the first quarter of 2007.

Fairmont Executive Vice President, Mr. John Johnston said, 'Fairmont Hotels & Resorts has built a reputation for excellence and we take great pride in being associated with The Palm Golden Mile and Al Nabat & Al Haseer. Managing these projects will be exciting for us, given their unique location on the world renowned The Palm, Jumeirah. Residents of properties will enjoy premium service that Fairmont has been known to provide worldwide, offering the very best in serviced living. We look forward to a long and mutually beneficial partnership with IFA Hotels & Resorts in the years ahead.'

Mr. Talal Jassim Al Bahar, Chairman and Managing Director of IFA HR, concluded 'Our continued strategic alliance with Fairmont Hotels & Resorts is strengthened by their appointment to manage The Palm Golden Mile and Al Nabat & Al Haseer. As a company, we are committed to provide a premium product offering to our buyers and it is fitting that this will be delivered by one of the best luxury hotel operators in the world.'

Starwood Hotels & Resorts, which operates more than 850 luxury hotels around the world, is shifting its regional office from Cairo to Dubai as part of major restructuring of its operations in the Middle East where the group is poised to double its portfolio to 100 properties in five years.

Roeland Vos, President for Starwood Hotels and Resorts in Europe, Africa and Middle East, said the re-organisation entailed changes in its operational structure by bifurcating its Middle East and Africa operations. "Dubai, where the hotel industry is witnessing a phenomenal growth, is our new regional head quarters and the launchpad of our regional expansion."He said the reorganization would enable the group to streamline operations in a way that produces the maximum benefit for its guests and the owners of the hotels which carry the Starwood brands.

“With an impressive 21 per cent growth in revenue per available room, the Middle East region was the top performing tourist region in the world during 2005 for the second year in row,” added Roeland. With the recent acquisition of the Le Meridien chain, Starwood's portfolio of hotels in the region has grown to 48 from 25. In the UAE alone the number of Starwood properties jumped from 7 to 19 hotels.

This has positioned the group as the largest and the only hotel operator having presence in every single market throughout the region. In Dubai, the latest project announced by the group is the Hotels Worldwide, a 350-room luxury hotel at Dubai Festival City — the brand's first Middle East property.

Dubai Festival City, which is scheduled to open in 2008, will be at the heart of Dubai Festival City's 245,000 square meters Harbour of the Creek development and will be the contemporary waterfront community's hospitality centrepiece. Vos said as a sophisticated commercial and tourist destination, with world-class shopping, dining, beaches and year-round sun, Dubai is an ideal regional launchpad for W.

“In the Middle East, we have a longstanding history that goes back to more than 40 years. Our strategy is based on expanding and diversifying Starwood's regional brand portfolio in key growth locations, and the recent acquisition of the Le Meridien brand worldwide represents a tangible translation of our expansion and diversification strategy,” he said.

Describing the growth of Dubai as a global tourist and hospitality centre as quite spectacular, Vos said the Dubai magic would sustain as long as the government supports the industry with worldclass infrastructure and other innovative marketing ideas that lure tourists and visitors to the Emirates. Dismissing suggestions that the current regional boom driven by Dubai is to end bubble-like, he said Starwood sees a long-term prospect for the region as whole and for Dubai in particular.

"Last year, Starwood operations in the Middle East witnessed a phenomenal growth with a 100 per cent portfolio rise. In the next five years, we are geared for a 100 per cent growth aided by the region's dynamic development including the all round economic boom, high population's growth along with its emergence as a major business and leisure destination."

Currently, Starwood group has some 14 projects, including five in the Middle East, under construction and 250 deals in the pipeline to ensure that the brand sustains its remarkable growth trend, he said. Starwood Hotels & Resorts Worldwide, which has presence in more than 95 countries, comprises brands including St. Regis, The Luxury Collection, Sheraton, Westin, Four Points by Sheraton, W, Le M?ridien and the recently announced AloftSM.

Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high quality vacation interval ownership resorts. Mr. Vos said the $225 million acquisition of the Le M?ridien brand management and fee business of 130 hotels and resorts globally supported Starwood's strategic shift from its significant real estate ownership to a management and franchise fee focused model, one of the strategic pillars that underpin Starwood's future direction. “The acquisition of the Le M?ridien brand is an exciting and significant development for Starwood that we believe further defines us as a truly global hotel operator,” he said.

With 43 properties in Europe, 47 properties in Africa and the Middle East, 28 properties in Asia Pacific and India and 12 in the Americas the brand is also a perfect complement to Starwood's current geographical footprint, securing its position as one of the leading consumer lifestyle hotel and leisure companies in the world, he said.

Affordable Lodging

A prototype of YOTEL, the world's most revolutionary hotel concept, was unveiled by Simon Woodroffe, CEO and Founder of YO! Everything and Gerard Greene, CEO of YOTEL at the Arabian Travel Market 2006 on Tuesday, May 2, 2006, introducing the innovative idea to Middle East audiences for the first time.

The prototype was unveiled in the presence of Talal Jassim Al Bahar, Chairman and Managing Director, IFA Hotels & Resorts. It will be on show at the IFA Hotels & Resorts' Stand 3410 throughout ATM 2006, the Middle East's leading four-day travel and trade show which began at the Dubai International Convention and Exhibition Centre today.

Speaking to the media at the unveiling ceremony, Al Bahar said: 'It's very exciting to be showcasing the YOTEL concept for the first time in the Middle East and we are on the look-out for locations where this innovative hotel can be developed for the regional market. We are in the midst of extensive negotiations with strategic international airports worldwide at the moment, and will be announcing the outcome of these during the course of the year. Dubai is a strategic hub for international travelers and we are exploring opportunities to locate a YOTEL in this exciting market.' Woodroffe said: 'YOTEL is the hotel of the future, offering luxury accommodation at an affordable price. The potential for the growth of this concept is immense. We are currently negotiating for a number of sites for YOTEL hotels across the globe and the Middle East is high on our agenda.'

'YOTEL is most suitable for major transportation hubs and urban destinations that host a strong mix of leisure and business visitors which makes Dubai and other Middle East cities paramount to our expansion plans. It took us three years to develop this radical new concept, which has the potential to forever transform the hotel industry. I'm truly delighted to bring YOTEL to Dubai,' Woodroffe added.

The first of YOTEL's pioneering and luxurious 'cabin' hotels are due to open in London in November 2006. Backed by major shareholder, Kuwait-based IFA Hotels & Resorts, a 40-cabin YOTEL will open within Terminal 4 of London Heathrow Airport while a 50-cabin YOTEL will open within London Gatwick Airport's South Terminal building.

A cross between Japanese pod hotels and business-class air travel, YOTEL is the brainchild of Woodroffe, who hit upon the idea after being upgraded to first-class on a British Airways flight to the Middle East, and decided to translate the language of luxury airline travel into a small capsule-style hotel. The concept was evolved into today's YOTEL hotel by Greene.

Woodroffe is also the creative force behind the worldwide restaurant brand YO! Sushi, which already has a presence in Dubai. He is well-known as an entrepreneur in the UK following a stint as a 'dragon' on the popular UK BBC2 television series, 'The Dragons' Den' where aspiring entrepreneurs vie for support from established business people. Al Bahar concluded: 'IFA Hotels & Resorts' aim is to provide a truly outstanding international network of tourism opportunities to global consumers. YOTEL represents our commitment to partnering with innovative industry leaders, and typifies the diverse portfolio of products in our expansion plans.'

DUBAI HOSPITALITY MARKET ANALYSIS

In terms of the development of infrastructure, more than US$40 billion worth of airport development work is currently taking place across the region; this will undoubtedly have a positive impact on the number of international arrivals in the Middle East.

According to the World Tourism Organization (WTO), the number of tourist arrivals in the region in 2005 grew by 7% on 2004 (Table 5). The deceleration in growth – compared to the double-digit growth of the previous year – is attributable in part to terrorist attacks in Egypt and Amman in 2005.

The number of up-market, boutique and lifestyle brands entering the markets has increased. Brands such as W, Banyan Tree, Mandarin Oriental, and Trump, and The Stein Group have entered (or are in the process of entering) the market. The level of investment in ‘trophy’ assets (the Trump Hotel Palm Jumeirah, the Emirates Palace Abu Dhabi, the Philippe Starck Design Hotel in Beirut, and various properties in Saudi Arabia) is increasing. The development of limited service hotels and serviced apartments continues to be noticeable across the region, as is the formation of specialist local operators/brands or hotel business lines such as Shaza, Refad, and Centro by Rotana.

Some of the main transactions and large developments that took place in the region in 2005 and early 2006 include the acquisition of Yotel (the design-led budget brand) by IFA Hotels and Resorts, the Initial Public Offering of Kingdom Hotel Investments (KHI), the establishment of the Armani brand (and fund) as well as the inauguration of Nakheel Hotels and Resorts.

2006 will be the year of creative branding and developments in the region. HVS International’s recommended investment targets for 2006 and 2007 across the region include the following asset classes.

• Luxury hotels in AAA locations;

• Limited service hotels;

• Serviced apartments;

• Condo hotels and hybrid assets.

The strong trading performance of the hotel markets, together with increased liquidity in the region, has triggered the creation of various, specialized hotel investment vehicles. HVS estimates that more than US$1.4 billion worth of capital was being raised in 2005 by newly established specialized hotel investment funds/vehicles. Such vehicles specialize in investing in specific asset classes within the hotel industry in the Middle East and North Africa (the remainder of the investment arena is dominated by high-net-worth individuals and institutional investors, which are on a par in terms of distribution).

Source: HVS International